Shanghai | The outbreak of a new type of bird flu and the mass dumping of dead pigs in a Shanghai river are expected to keep China’s consumer prices in check over the next few months as people stop buying chicken and pork.

But rising property prices and the increase of government spending on infrastructure projects across the country should cause a pick-up in prices over the second half of the year.

China’s inflation rate dropped back to 2.1 per cent in March, the National Bureau of Statistics said on Tuesday. That was less than expectations of a 2.5 per cent increase and well down on the 3.2 per cent jump in prices in February, during Chinese New Year.

Producer prices fell for a 13th straight month, by an annual 1.9 per cent in March, compared with a 1.6 per cent fall in February.

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The lower than expected inflation result may suggest people are spending less and the economic recovery has lost some of its momentum. But it also takes the pressure off the central bank to tighten credit.

ANZ’s Shanghai-based economist Hao Zhou said that “inflationary pressure has eased off in the short term".

“The demand for pork and chicken will decline for the next two to three months but we think the bird flu will have just a short-term impact," he said.

Cities across China have put their hospitals on alert and some have banned the sale of live chickens after an outbreak of a new strain of bird flu in and around Shanghai. So far, 24 people have been infected with the H7N9 virus and seven people have died.

The People’s Bank of China and the government have warned that managing inflation will be one of the country’s toughest challenges this year.

The government has introduced new property restrictions in an attempt to curb surging prices across the country’s major cities. Its official forecast is for an annual inflation rate of 3.5 per cent this year.

UBS economist Wang Tao said economic activity across China was recovering but “the momentum is weak".

“Investment projects have started somewhat slow, resulting in weaker demand for construction materials than expected," she said in a recent report. The drop in the PPI was most likely “due to a correction in material costs", she said.